First, earnest money is not required in order to make a binding contract. If you and the seller sign the agreement without making any more changes, you have a contract. Whether or not there is earnest money is irrelevant. If the contract calls for earnest money, but you as the buyer never write the check for some reason, you still have a legally enforceable agreement.
Earnest money serves two functions. It is some indication of your financial ability to close because you at least have on hand the cash for the earnest money. Next, it has hostage value in case you default. Many contracts say that if the buyer defaults, the seller can keep the earnest money but cannot sue for additional damages. Most form contracts created by real estate associations say that if the buyer defaults, the seller and the seller’s agent will split the earnest money 50/50.
The typical earnest money amount will vary from community to community. There are no specific rules. One of my clients purchased $650,000 worth of real estate on $5,000 in earnest money. Another client sold $795,000 worth of real estate on $100,000 of earnest money. I have bought property with absolutely no earnest money. You have to evaluate each situation yourself. I would recommend starting out low. If you have identified a good flip opportunity that you can buy cheaply, that is probably because the seller does not have a long line of people waiting to purchase the property. Offer $500 in earnest money and see if the seller counteroffers by demanding more or if he or she is willing to do a deal on that basis.